Why 99% of Innovators Fail on the Financials
They plan for 100% success
Innovation is risky, but that risk can be managed. In my years working with businesses struggling to hit their growth goals, I’ve seen the same mistake over and over: they don’t plan for failure.
Innovation requires optimism and a willingness to explore new ideas. But the reality is, some ideas just won’t work. If you don’t prepare for that, you’re setting yourself and your team up to fail. This issue was so common that I dedicated an entire chapter to it in my recent book, Risk-Free Innovation: 10 Ways to Manage Uncertainty.
One of the biggest reasons innovators fall short of their goals is because they don’t include failure in their financial planning. New ideas come with unknowns, and some launches will underperform. If not properly planned for, this can lead to teams losing their annual bonuses, or even their jobs – which in turn creates a fear of failure and a resistance to taking future risks needed to innovate successfully.
So instead of fearing failure, the best way to succeed is by planning for it.
Here’s a simple process for doing that:
1. Set Your Innovation Revenue Goal
Start by deciding how much revenue you need from new products or services.
Example:
Your company currently generates $20 million in revenue, and wants to grow at 12% each year to reach $35 million in 2030
That means we need to develop at least $15 million from innovations over the next five years to fill that gap.
2. Plan for Failure
I’ve seen firsthand that even companies with strong innovation processes still see 40% of their new launches fail. That means you need to overbuild your pipeline to make sure you reach your goal.
Here’s how the math works:
Target Revenue: $15 million
Expected Success Rate: 60% (assuming 40% of projects fail)
Required Pipeline Value: $25 million (because 60% of $25M = $15M)
To summarize, if our goal for the next five years is to grow the company by $15 million dollars through innovation, we have to come up with ideas that have a total expected value of $25 million so that when 40% of them fail, we will still meet our goal.
3. Set Expectations with Leadership
One of the toughest parts of this process is convincing leadership to get on board with this mindset shift. On the surface, it might seem like you’re asking for extra funding. But the reality is, this approach actually reduces risk because it ensures your company meets its targets even when things don’t go exactly to plan. We aren’t promising the world and failing to deliver, we’re trying to overshoot our goal so that if we fall short, we still end up where we wanted to be in the first place.
Another key expectation that needs to be set: innovation takes time to make money. Between R&D, testing, and marketing costs associated with launching a new product or service, leaders will be champing at the bit to see some quick returns. Unfortunately, it will take some time before the big profits start rolling in. While new products and services should bring in more revenue than they cost to make, it could take months before they actually turn a net profit for the total return on innovation.
This chart shows the relationship between profits and revenues over the course of an innovation’s lifecycle.
Innovation Profitability Lifecycle
It will take some time post-launch for innovations to begin earning overall profits when you take into account the development costs.
Why Planning for Failure Works:
Instead of crossing your fingers and hoping every launch is a hit, you accept that failure is part of the process and adjust your financial models accordingly.
This approach:
Reduces the risk of missing your targets
Creates a healthier innovation culture
Ensures your company hits growth goals more consistently
When you plan for failure, you can innovate with confidence. The most successful companies aren’t just the ones who take the biggest risks; they’re the ones who take enough shots to make sure they win. Even the best baseball players only get a hit less than 40% of the time – innovation isn’t all that different!
If you want innovation to be a focus of your company’s culture and growth strategy, you need to plan for failure.
